The REAL reason so many small energy suppliers have failed - it was inevitable.

[Deleted User]

MWT said:

 This one isn't down to Ofgem and the cap.

Isn't due diligence, vetting, granting of licences and ongoing oversight down to Ofgem? Sounds very much like I could poll up one day as a private individual, and set up next day as a supplier...

[Deleted User]

Deleted_User said: Also ideally accounts should be subject to official audit unless, of course, the company is too small. However, the audit industry hasn’t exactly covered itself in glory in recent times. Even large audit groups have suffered large fines for incompetence and poor oversight, and being too close to their clients. 

I note that Deloitte Insolvency has been hived off to Teneo, and KPMG to Interpath. Ernst and Young hasn't been quite so blatant, and has rebranded as EY. 

The tag on the Teneo twitter account is 'Follow us for analysis on the issues that matter most to CEOs and their businesses, firm news, and thought leadership content.' How exclusive and pompous is that? 

MWT

Deleted_User said:

MWT said:

 This one isn't down to Ofgem and the cap.

Isn't due diligence, vetting, granting of licences and ongoing oversight down to Ofgem? Sounds very much like I could poll up one day as a private individual, and set up next day as a supplier...

Broadly, yes, there are a few things that could disqualify you on the grounds that you are not a fit person to manage a licenced company but that is about it, and to be fair there is no objective 'qualification' for starting up any business.

What is not within Ofgem's remit is to pass judgement on the detail of the commercial operations, so for example offering many cheap fixed tariffs without any hedging is not something they can object to. Similarly they are constrained in the hurdles they can put in the way of a licence application on the grounds of access to investment funds as they are not supposed to put artificial barriers in the way of new entrants to the market.

I know we all criticise Ofgem, but the real problems are with the remit they have been given rather than the execution of the remit in most cases...

Thrugelmir

MWT said:

Streaky_Bacon said:

This is just how the company ownership is accounted for. It has absolutely nothing to do with how much money Bob and Carol, or anybody else actually puts into the common.

Although that is certainly true, the administrators have confirmed that no additional working capital of any kind was obtained by the company beyond the amounts received from customer payments, so the essence of the comment remains accurate.

That's the nature of many limited companies. Banks and other financial institutions provide the bulk of working capital. 

MWT

Thrugelmir said:

MWT said:

Streaky_Bacon said:

This is just how the company ownership is accounted for. It has absolutely nothing to do with how much money Bob and Carol, or anybody else actually puts into the common.

Although that is certainly true, the administrators have confirmed that no additional working capital of any kind was obtained by the company beyond the amounts received from customer payments, so the essence of the comment remains accurate.

That's the nature of many limited companies. Banks and other financial institutions provide the bulk of working capital. 

The point here is that absolutely no other capital was obtained, not from a bank or any other financial institution...

ihatetrump

The point here is that absolutely no other capital was obtained, not from a bank or any other financial institution.

In fact, unless I am mistaken , there is not one energy company that failed where there was any form of external institutional financing - banks wouldn't touch them - they wouldn't pass the sniff test.

Loan financing requires debt coverage ratios, covenant compliance and some corporate governance - not a chance in hell with virtually all of the failed companies. 

Some form of OFGEM annual covenant testing or ring fencing of customer funds would have prevented some of the abuses (probably not all) and would have prevented some of the reckless risk taking that so many of these failures were prone to.

[Deleted User]

ihatetrump said:

The point here is that absolutely no other capital was obtained, not from a bank or any other financial institution.

Some form of OFGEM annual covenant testing or ring fencing of customer funds would have prevented some of the abuses (probably not all) and would have prevented some of the reckless risk taking that so many of these failures were prone to.

If Ofgem brings in escrow and mandatory hedging then the result will be higher energy costs which rather runs counter to the aims of this particular website. I a. Not saying that it is a bad thing, but people must understand the consequences of what they might wish for.

MWT

[Deleted User] said:

If Ofgem brings in escrow and mandatory hedging then the result will be higher energy costs which rather runs counter to the aims of this particular website

The good thing about mandatory hedging linked to tariff types would be that the company can still elect to sell cheap variable tariffs without hedging, but only trigger the requirement to hedge if they want to get into fixed tariffs.

... but I do think that any more general ring-fencing of advance payments wouldn't work as this is an industry where advance payments do need to be available to cover advance costs.

... and yes, although this would translate into short term price rises, I'm not convinced that the old system was delivering truly low costs as we are all going to be paying for these reckless failures once the losses have been mutualised.

Shedman

Headline in todays Telegraph (behind paywall so I can't read it)

Avro Energy collapsed owing £90m to customers

https://www.telegraph.co.uk/business/2021/11/21/avro-energy-collapsed-owing-90m-customers/

QrizB

Shedman said:

Headline in todays Telegraph (behind paywall so I can't read it)

Avro Energy collapsed owing £90m to customers

They had almost 600k customers, so that's an average of £150 each. Sounds the right sort of number, given that we're going into winter and the majority of DD accounts would be in credit.